Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 14 - Evidence

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-22, to facilitate combatting the laundering of proceeds of crime, to establish the Financial Transactions and Reports Analysis Centre of Canada and to amend and repeal certain acts in consequence, met this day at 11:00 a.m. to give consideration to the bill.

Senator E. Leo Kolber (Chairman) in the Chair.

[English]

The Chairman: Good morning, honourable senators. This morning we are meeting to discuss Bill C-22.

We have from the Department of Finance, Mr. Charlie Seeto, who will make an opening statement to fully brief us on all aspects of the bill.

Welcome, Mr. Seeto.

Mr. Charlie Seeto, Director, Financial Sector Policy Branch, Department of Finance: Mr. Chairman, we appreciate the opportunity to speak to your committee today on Bill C-22, the proceeds of crime, or money laundering, act.

Honourable senators, no country, Canada included, is immune to organized crime or money laundering activities. Money laundering is the process whereby the proceeds from criminal activities are converted into assets that cannot be easily traced back to their illegal origins.

The process typically begins with the placement of cash into financial channels. It may also involve a series of complex financial transactions in which the "dirty money" is "layered" to further disguise its origins and then "integrated" or "invested" in seemingly bona fide assets.

Estimating the magnitude of any illicit activity, including money laundering, is always difficult. However, studies using methodologies that have been adopted by recognized international organizations have estimated that between $5 billion and $17 billion in criminal proceeds are laundered in and through Canada every year. Consistent with the experience in other countries, most of the funds laundered in Canada are linked to drug trafficking.

The social costs of money laundering take many forms. Once laundered, the proceeds of crime can be used to finance further criminal activity, perpetuating a vicious cycle of crime.

In this same vein, because criminals must generally launder the proceeds of crime in order to enjoy their illicit profits, money laundering helps provide the financial incentive for criminal activity.

In addition, the large profits available to those involved in the money laundering process can be used to corrupt otherwise law-abiding citizens. This can result in the distortion of business and financial activity by the criminal element. Honest businesses can face unfair competition from those that derive part of their income from money laundering. When money is laundered through financial institutions, the reputations, and even the integrity, of the individual institutions can potentially be undermined.

Canada has had the building blocks of an anti-money- laundering program in place since 1989, when amendments to the Criminal Code, the Food and Drugs Act, and the Narcotics Control Act made money laundering a criminal offence and put in place procedures for seizing, restraining, and forfeiting proceeds of crime.

The 1991 Proceeds of Crime (money laundering) Act established our current system of record keeping and client identification for transactions conducted through financial institutions, as well as for professions acting as financial intermediaries, including lawyers and accountants.

Complementing these measures, certain deposit-taking institutions entered into cooperative arrangements with the RCMP in 1993 that provide for the voluntary reporting of suspected money laundering activities to police.

These and other measures taken to date have produced some positive results. The problem is that money laundering techniques are becoming more sophisticated and detection and deterrence increasingly difficult. It is clear that Canada now needs stronger and more effective legislation than that currently on our books. The effectiveness of our current suspicious transaction reporting scheme is limited by its voluntary nature and its very uneven coverage of the different points at which illicit funds can enter the system.

While the scheme is supported by voluntary agreements between the RCMP and certain deposit-taking institutions, no such agreements cover other points at which the placement of illicit funds can occur, such as insurance companies, securities dealers, casinos, currency exchange businesses, and professionals, including lawyers and accountants.

Extending existing arrangements for the voluntary reporting of suspicious transactions to other institutions and professions is not the answer. Unfortunately, even where such agreements exist, reporting has been extremely uneven. Experience shows that institutions have information about suspicious transactions that would be useful to the investigation of a money laundering offence, but that is not being reported. Given these limitations, law enforcement agencies have also relied on traditional methods such as conducting "sting" operations through storefront money exchange businesses. However, these methods are only effective in uncovering relatively small-scale money laundering activity and can only ever address a fraction of the money laundering that is occurring.

In addition, the current measures have tended to focus only on the initial placement of cash into financial channels. Though this will continue to be an important part of anti-money-laundering efforts, broader coverage and mandatory reporting would also provide police with valuable information to address the "layering" stage of money laundering, where complex financial transactions are used to further disguise the proceeds of crime.

Law enforcement agencies both here and abroad, and the Financial Action Task Force on Money Laundering, or FATF, to which Canada belongs, have called on Canada to make the reporting of suspicious transactions mandatory.

As the honourable members of this committee may know, the FATF was created in 1989 by G-7 leaders to set standards for combating money laundering at the national and international levels. To this end, the FATF established 40 recommendations that all of its 28 members, including Canada, have agreed to follow.

I am pleased to table with this committee three FATF documents that provide background on the problem of money laundering, the international efforts to combat it, and the importance of the kind of measures contained in Bill C-22. These documents are: the most recent annual report of the FATF, its reports on money laundering typologies for 1999-2000, and the 40 recommendations. I understand that we have provided a copy to the Clerk.

One recommendation is that each country require its financial institutions to report to competent authorities when they suspect that funds stem from a criminal activity. Canada is the only country in the FATF that has not yet implemented some form of mandatory reporting of suspicious transactions. The experience of other countries has demonstrated the benefits of financial transaction reporting to law enforcement efforts. It has also provided a variety of models that the government was able to consider in preparing this bill and in designing Canada's anti-money-laundering centre.

With respect to the benefits, the effectiveness of reporting schemes in other countries can be illustrated by the latest annual report of Australia's anti-money-laundering agency. The report includes brief notes on a sample of some 200 cases in which information provided in financial transaction reports either initiated or contributed to criminal investigations. As well, the U.K. has estimated that, over the last four years, an average of about one-third of all suspicious transaction reports provided added criminal intelligence value. On a smaller scale, statistics from Belgium reveal that, of the approximately 24,000 suspicious transaction reports received by Belgium's anti-money-laundering agency between December 1993 and 1998, approximately 1,400 were sent to judicial authorities, and 117 resulted in convictions against more than 200 people.

In addition to reports of suspicious and "prescribed" transactions, law enforcement agencies have also called for the reporting of cross-border movements of currency. Again, this type of reporting requirement is consistent with the FATF's recommendations to all its members. This measure is important in ensuring that the introduction of tougher anti-money-laundering measures here in Canada does not simply shift the problem across our borders.

Mr. Chairman, Bill C-22 is the government's response to this need for stronger legislation. While it continues the record-keeping and client identification features of the existing Proceeds of Crime Act, this bill will provide for the mandatory reporting of suspicious and other prescribed transactions, the reporting of large cross-border movement of currency, and the establishment of the new Financial Transactions and Reports Analysis Centre of Canada.

Before describing these elements, I would like to emphasize that each, as well as the proposed scheme as a whole, has been designed not only to meet the needs of law enforcement, but also to protect the privacy of Canadians to the greatest extent possible. I will outline some of the key protections contained in the bill in a moment when I describe the features of the proposed centre.

With respect to mandatory reporting, regulated financial institutions, casinos, currency exchange businesses, and other financial intermediaries will be required to report any financial transaction where there are reasonable grounds to suspect that it is related to the commission of a money laundering offence. Specific types of transactions such as the receipt of cash above a prescribed amount, for example, must also be reported.

The bill's second provision requires that persons or entities that import or export large amounts of cash or monetary instruments like travellers' cheques across the Canadian border must report that to Canada Customs. Canada Customs will then forward the reports to the anti-money-laundering centre.

Currency can be seized if it is not declared and will be returned upon payment of a fine, unless Canada Customs has reasonable grounds to suspect that it represents proceeds of crime. There will be mechanisms in place for the review and appeal of cross-border seizures and penalties.

The third element in the bill involves the establishment of the new Financial Transactions and Reports Analysis Centre of Canada. The centre's primary function will be to receive and analyze the reports mandated by this bill. The centre's analysis will determine whether limited information from the reports will be passed on to the appropriate authorities. Great care has been taken to ensure that the centre's design and the legislative framework under which it operates serve to protect the privacy of Canadians.

I would like to review some of the safeguards in the bill that ensure that the collection, use, and disclosure of information by the centre will be strictly controlled.

A key feature of the proposed regime is that the reports mandated by the bill will not be provided directly to law enforcement agencies. Rather, as I have mentioned, the reports will be sent to the anti-money-laundering centre. The centre will be an independent body, acting at arm's-length from law enforcement and other agencies that are entitled to receive information from the centre. This means that information reported to the centre about suspicious and prescribed transactions, as well as cross-border movements of currency, will be subject to independent review and analysis.

The information received by the centre will be subject to strict confidentiality provisions to prevent its unauthorized disclosure. Any unauthorized use or disclosure of personal information under the centre's control will be subject to criminal penalties, including fines of up to $500,000 or imprisonment for up to five years.

In addition, the situations under which the centre will be authorized to disclose information will be limited and clearly set out in the act. Only if the centre, on the basis of its analysis, determines that designated information would be relevant to investigating or prosecuting a money laundering offence, will it be disclosed to the police.

"Designated information" is defined in the bill and is limited to key identifying information about the transaction or the cross-border currency movement concerned. For example, in the case of a reported transaction, the information that can be passed on to the police would be limited to such facts as the name of the client, the name and address of the business where the transaction occurred, the account number, and the value of the transaction.

The centre will only be able to release additional information if law enforcement authorities build a case for prosecution purposes and obtain a court order for disclosure of information related to a money laundering offence. The centre will not be subject to search warrants.

The centre will also be authorized to disclose designated information to certain other domestic government agencies, but only under specific conditions. For example, the centre will disclose designated information to CSIS if it has reasonable grounds to believe that the information would be relevant to a money laundering offence and also that it would be relevant to a threat to national security.

The suspected link to money laundering is a test that must be met for any disclosure by the centre. The centre's independence from law enforcement is an important element of this bill's protection of privacy. Privacy considerations contributed to the choice of this model over those of a number of other countries, where similar anti-money-laundering agencies are located within law enforcement agencies or financial regulators.

The centre's independence and autonomy in determining what information shall be disclosed to the police is balanced by its overall accountability to Parliament.

The Minister of Finance will be responsible for the centre. The centre shall report annually to the minister, and the minister shall table a copy of the report in each House of Parliament.

While the day-to-day operation of the centre is clearly the responsibility of its director, the minister will have the authority to direct the centre on matters of public policy and strategic direction. As well, the centre will be subject to the protections of the Privacy Act. For example, the Privacy Commissioner will have the authority to obtain information from the centre in order to investigate a complaint under that act. As is the case with other government institutions, the Privacy Commissioner's office can use its authority to investigate complaints by individuals against the centre, or to both initiate and investigate a complaint. As well, the individual will have recourse under the Privacy Act to the Federal Court.

I would now like to discuss the bill's regulation-making authority with respect to entities, client identification, record keeping, and reporting requirements. It is important that the government be able to respond quickly to the ever-changing nature of money laundering and adopt changes to how financial intermediaries conduct their business. This authority provides that flexibility. The aim is to develop regulations that are consistent with the principles underlying the bill. This means striking an appropriate balance among the objectives of law enforcement, protection of personal information, minimum compliance costs, and support for Canada's contribution to international efforts to combat money laundering. Extensive consultations have already begun on developing these regulations with these goals in mind.

In addition, this bill requires a 90-day pre-publication period for proposed regulations, as well as an additional 30-day notice period for any further changes to proposed regulations before they become effective. These requirements go well beyond what is set out in many federal statutes and give ample opportunity for parties to provide input.

The Chairman: Where are the regulations published?

Mr. Seeto: In The Canada Gazette.

The Chairman: There is no oversight there. What can you do about that?

Mr. Seeto: We would invite comments.

The Chairman: The only reason I bring it up is we are having this problem with every bill that is coming to us. We receive the bill and then the bureaucracy has the right to put in any regulations it likes with virtually no oversight. When there is oversight, it is by a parliamentary committee that knows nothing about the bill.

I am having trouble with the whole notion of unchallenged regulatory authority. Maybe someone will ask a question on that and perhaps you will respond. I did not mean to interrupt, but I want you to know that it is a sore point.

Mr. Seeto: A closely related matter concerns the guidance that will be provided to institutions and persons who, in fulfilling the reporting requirements under this bill, must determine whether there are reasonable grounds to suspect that a particular transaction is related to the commission of a money laundering offence. Guidelines will be issued by the proposed anti-money-laundering agency to assist with this determination. This approach has been taken in many other member countries of the FATF, including Australia, the U.K., and the U.S.

These proposed guidelines will be developed in full consultation with stakeholder groups, and will reflect the circumstances of the businesses and professions that have a reporting obligation under Bill C-22. It should also be noted that there are existing anti-money-laundering guidelines that could serve as useful models. For example, the Superintendent of Financial Institutions issued guidelines for deterring and detecting money laundering in 1996. In addition, the experience of other countries that require suspicious transactions to be reported will be drawn upon in the development of appropriate guidelines for the purposes of our proposed legislation.

In closing, honourable senators, I want to point out that Bill C-22 was developed in consultation with many key stakeholders, including the provinces, the territories, the financial community, consumer groups, and organizations concerned about privacy issues. This bill updates and strengthens the existing act and improves the detection, prevention, and deterrence of money laundering in Canada. In addition, it gives law enforcement agencies the tools they need, and at the same time protects individual privacy. Further, these measures will also bring Canada into line with accepted international standards in the fight against money laundering.

Mr. Chairman, we will be pleased to answer any questions.

The Chairman: Clause 72 of the bill provides for a five-year review of the act by:

...the committee of Parliament that may be designated or established by Parliament for that purpose...

This form of wording leaves open the idea that a Senate committee may be excluded from such a review. Could you elaborate on that, please?

Senator Furey: The previous clause on the annual report clearly spells out reporting to both houses.

The Chairman: Clause 72 does not.

Mr. Seeto: Clause 72 states that within five years of the coming into force of this clause, the administration and operation of the act is to be reviewed by committee of Parliament. That clause leaves it to Parliament to establish the committee that will undertake the review. Parliament, that is to say, both the House of Commons and the Senate, will decide on its own procedure for establishing the committee.

We also looked at other statutes and found that there was no standard wording for this type of clause. The wording of the provision in Bill C-22 does leave it up to Parliament to determine the make-up of the committee. The effect is the same as provisions in other legislation, such as the Privacy Act, that refer to a committee of the House of Commons, of the Senate, or committees of both houses, as may be designated or established by Parliament.

The Chairman: One of the problems in saying "Parliament" is that it really means the upper chamber and the lower chamber.

Mr. Seeto: Right. That is the intent.

The Chairman: I think it lacks a certain amount of -- excuse the expression -- clarity. Is there any way we can get a letter from the minister saying that "Parliament" is intended to mean both houses?

Mr. Seeto: Mr. Chairman, we will raise your suggestion with the minister.

Senator Furey: If you look at the previous clause, which requires an annual report, it clearly spells out both houses. Why would it not be that clear in the following clause?

Mr. Seeto: The intent is to allow both houses to decide.

Senator Furey: You spell it out in clause 71 but not in clause 72.

The Chairman: If that is your intent, send us a letter that says so.

Mr. Seeto: We will recommend that to the minister.

Senator Tkachuk: Could we have an answer to the question that Senator Furey posed?

Mr. Seeto: I believe it was a drafting issue. It was meant to refer to the procedure by Parliament, and "Parliament" means both Houses. That is the interpretation we have from the Department of Justice on this issue.

Senator Kroft: I do not feel that because I am the sponsor and have already spoken on this bill, that gives me the right to be over on your side of the table. Every Canadian must begin by being troubled by this bill, and then we must see if we can find a level of comfort.

Conceptually, any bill that turns Canadians individually, and institutions, into whistleblowers, or words less flattering, is troubling by its very nature. We must look at whether or not the problem is sufficiently large and difficult that it needs an extraordinary response, and then whether or not that response is balanced and appropriate. It is important to go through this exercise because I do not think any of us like the fundamental concept.

I want to try to find my comfort level in a number of areas, so that we can be satisfied that it is an appropriate response to a serious challenge. I have three specific issues to raise. There could be many more, but I have three tests, or questions to ask.

First, can you give me some comparison of this bill with what is being done elsewhere? You say that we are the last guys at the party in terms of bringing in some legislation. Can you give us some sense of whether we are being less stringent than other jurisdictions, or more zealous? Have there been particularly contentious issues? It is fine to say that we are developing legislation, but how does ours fit with Charter-related concerns? How do we compare with others in that regard?

Second, what level of agreement has been reached with other recognized guardians of our civil liberties? I am not sure who will be speaking to that point, but I understand from my briefing that there have been consultations with the Canadian Bar Association and so on. I should like to know the status of those consultations. Have comfort levels been reached? That would apply equally to the accountants. In particular, as a lawyer, I wish to know about your discussions with lawyers, because it is an incredibly sensitive area. I see in the wording that "privilege" is protected, but you are talking about lawyers in a different role. It is a particularly interesting issue.

Third, what has been the nature of your discussion, and to what extent have you reached a comfort level, with the Privacy Commissioner?

Mr. Seeto: I will ask Mr. Richard Lalonde to respond to your first two questions.

Mr. Richard Lalonde, Chief, Financial Crimes Section, Financial Sector Policy Branch, Department of Finance: Regarding comparable regimes in other jurisdictions, we were privy to how other countries had attempted to do this when we were developing the proposal. Our guiding light has been the international standards of the Financial Action Task Force on anti-money-laundering measures. Our proposal is based on those international standards. It just so happens that, over the last decade, other countries have also put in place similar regimes that apply the same standards, recognizing that there will be some differences from one country to another, depending upon their privacy legislation, constitutions, charters, and internal government organizations. In some countries, the proposed agencies are adjuncts of their law enforcement agencies. In others they are completely separate and independent, which is the case with the proposal before you today. It is difficult to say whether our regime is more or less stringent than those of other countries. However, we have benefited from their experience in designing the proposed regime. It has all of the positive features of other regimes. It certainly respects our Canadian Constitution, our Charter, and builds in features appropriate to that context.

Senator Meighen: Is it possible to develop some sort of table indicating which of the 28 members have a mandatory reporting regime, and which ones require reporting to an independent agency as opposed to a law enforcement agency?

Mr. Lalonde: We can certainly come up with such a table, but everyone except Canada has mandatory reporting at this point. Your focus, senator, would be on which jurisdictions have which kind of models?

Senator Meighen: Yes. I had not realized we were the last of the 28 members.

Mr. Lalonde: We can provide the committee with that information.

Senator Kroft: Have your discussions with the Canadian Bar Association and the Privacy Commissioner reached a peaceful conclusion?

Mr. Lalonde: We have had a number of discussions in the past few months with representatives of the Canadian Bar Association. While they will support the objectives of the bill, they have expressed a number of concerns about the role that it would have lawyers play in terms of reporting, in particular in the reporting of suspicious transactions. We have indicated to them that the bill states clearly that nothing in the bill requires them to breach privilege, or to report anything that falls within the category of that privilege. I gather you will be speaking with them soon. Their concerns remain, nevertheless.

We have indicated to them, and would indicate to you as well, that our interest in providing that lawyers are covered by this bill is to ensure that there are no gaps in the financial sector. We know that lawyers perform many roles, one of which is as financial intermediaries. In that role, they are not very different from other players within the financial sector who are covered by the scope of this bill.

We are prepared to make it clear that the scope and application of this proposed legislation applies to lawyers insofar as they are acting as financial intermediaries. We will have to find the appropriate wording, but that is the concept, and certainly one that we intend to carry out.

Senator Kroft: And the Privacy Commissioner?

Mr. Lalonde: Again, we have had discussions with the Privacy Commissioner's office over the past few months. Notwithstanding those discussions, they do not have specific issues on the way the bill was drafted. Their fundamental concern remains that the proposed regime is a choice for Parliament to make, in that it does impose a requirement for individuals to report on their clients, and therefore raises significant privacy issues.

I do not know whether the provisions of the bill that protect individual privacy would raise any particular concerns with the Privacy Commissioner.

Mr. Seeto: I want to add that we had a number of discussions with the Privacy Commissioner as we went through the bill. These were the words of his staff: "Given the objective, it looks like the `plumbing' is in a good state." We have tried to address their concerns, given the objectives of the bill.

Senator Kelleher: Some of my questions have already been partially addressed. Given that we were the last to come forward with a proposal, we have had an opportunity to observe and examine what other countries have done. I am concerned about whether we really needed an independent government agency for this purpose, with its inherent costs and added layer of bureaucracy.

Perhaps, Mr. Chairman, it would be wise to wait and review what other countries have done, in light of Senator Meighen's sensible request for some sort of chart. We can leave that discussion for now, but it is certainly an open question in my mind as to whether we should be adding another layer of bureaucracy by creating a new agency. I gather that not all countries are doing it this way?

Mr. Lalonde: Not all, but many countries have done it in the same way that we are proposing. The United States, Australia, and France are three examples. Germany may be the exception. Japan has a separate agency as well. I could go on.

The fundamental difference here is that, in the context of our Canadian Charter and our Constitution, the independence of law enforcement from government is necessary in order to balance both the rights of individuals and the needs of law enforcement overall. To house the proposed agency within law enforcement would tilt that balance. That is why we so carefully structured the provisions in Part 3 of the bill.

Senator Kroft: We have now another expert here in the person of Senator Kelleher, who has raised the economic issue. I am curious to know, in light of his past ministerial responsibilities for other agencies that may well have been possible alternatives, whether Senator Kelleher has any thoughts on whether any of those might serve well in this context?

Senator Kelleher: Perhaps that can be a joint question from you and me, Senator Kroft. Ancillary to this is not only the added layer of another agency and the inherent costs, but second, I am wondering why -- and I guess I am showing my former partiality for the Solicitor General's office -- the reporting is to the Minister of Finance rather than to the Solicitor General. I do not disagree with the principle of keeping it as arm's-length, but since this is primarily a law enforcement measure, why not have the agency report through Parliament to the Solicitor General rather than to the Minister of Finance?

With the greatest of respect, the Ministry of Finance is doing quite a lot of work here in Ottawa, and it would not hurt to share some duties with other ministries. How is that for being diplomatic?

Mr. Seeto: The existing Proceeds of Crime Act is the responsibility of the Minister of Finance because it deals with financial intermediaries.

Much of the discussion on the development of this bill and its framework centred on how to set up the centre to meet the Charter issues. How do we deal with a successful Charter challenge on invasion of privacy? We had long and difficult discussions on that issue.

We looked at having the agency report to the Solicitor General. At the end of the day, the experts advised that the agency should report to someone who is not responsible for law enforcement. It was decided that the agency would report to the Minister of Finance. It was not something that the Department of Finance advocated.

Senator Kelleher: Perhaps, Mr. Chairman, it would be useful to have a separate witness from the Ministry of the Solicitor General to discuss this issue, because with the greatest respect, I am not totally convinced by Mr. Seeto's answer. People who report to Parliament on basically a law enforcement issue should have experience and knowledge in the law enforcement area. With the greatest respect, that is the Solicitor General's office, and not the Ministry of Finance.

I know there is someone here this morning from the Solicitor General's office, but that does not really satisfy me. That puts this official between a rock and a hard place.

Mr. Seeto: I would like to ask Stan Cohen from the Department of Justice to answer this question.

Senator Kelleher: I was just saying that I do not think he is the appropriate witness. I would like to have the opinion of a senior official from the Solicitor General's office.

The Chairman: Senator, we will arrange to do that. In the meantime, let's hear from this gentleman. Perhaps he can shed some light on the subject.

Mr. Stanley Cohen, Senior Legal Counsel, Human Rights Law Section, Department of Justice: Perhaps I can explain some of the thinking that went into this caution. My job is to give advice on the Charter issues affecting the criminal justice system, and in this case, issues affecting the phenomenon of money laundering.

As to the caution of placing this agency under the aegis of the Minister of Finance as opposed to some other minister, it is true that in terms of pure efficiency, it might have been preferable to have placed it within the realm of law enforcement. However, the dynamic at work in this context is pretty well new to Canada, and certainly precedent-setting in terms of the Charter.

This agency essentially receives personal information without benefit of a warrant, the obtaining of judicial authorization, or oversight before information is collected. That information is collected at a standard in the bill of "reasonable suspicion," which is not the "reasonable and probable grounds" that affects the appropriation of information pursuant to a search warrant.

There is a massing of information within a central agency that essentially has not yet reached the standard of reasonable and probable grounds for believing that an offence of any kind has been committed. Thus there is a need -- and I think I could point you in the direction of case law -- to protect privacy, which is evident just from the very design and the very orientation of the entire system.

One starts with the view that before this information, which is gathered at a low level of suspicion, a low standard, is passed on to law enforcement, there must be some vetting and some assessment.

Essentially, there was a need for some independence from law enforcement; otherwise, you might just as well have a straight flow-through to law enforcement, which would make it purely a surveillance and information-gathering device of really quite substantial proportions.

Once you accept that there should be some body interposed between the initial gathering and the furnishing of the information to law enforcement, it becomes necessary to address the kind of model.

You could set up a model within law enforcement, but you would have to create substantial bureaucratic means of separating the initial intake from the final disposition of the information to police investigators if you really wanted to protect privacy. You must remember that other models, like CSIS, have quite an extensive, sophisticated, and costly bureaucratic structure as well. There you have an Inspector General and the agency itself, and then you have the minister, in some sense removed from CSIS, and also elaborate reporting requirements.

Placing this body outside of law enforcement is seen as a means of ensuring that the whole enterprise can "lift off"; that you will not have expended a huge amount of public funds, only to see it flounder in the first substantial constitutional challenge that there has been a warrantless appropriation of private information belonging to Canadians.

The thinking was that the proposed structure better protects privacy and still accomplishes the law enforcement need in an efficient manner.

Senator Kelleher: With the greatest respect, I do not think you have totally answered my concerns.

Assume for the moment that we agree with you that the best way to do this is through an independent agency at arm's-length. I am suggesting that the reporting minister be the Solicitor General as opposed to the Minister of Finance, who frankly is not as learned in the areas of law enforcement as the Solicitor General, for example.

Mr. Cohen: If you placed the reporting relationship under the Solicitor General, you would have a minister who is responsible for policing -- in other words, the oversight of the RCMP -- and for national security surveillance through CSIS, also running an agency that is supposed to be operating at arm's-length from law enforcement. Given the public impression that that might give rise to, it would be a difficult sell. It is possible to do it, but you would create an impression that there is a much closer relationship than the public or the courts might like.

Senator Kelleher: We can leave that for another day.

Senator Furey: It seems to me that the bigger concern is not so much the public perception, but whether or not it would survive a Charter argument. Is that correct?

Mr. Cohen: That is correct.

Senator Furey: That is really more where you are coming from.

Mr. Cohen: We certainly start with that, but it takes you back to the whole notion of what is involved here and the initial appropriation of the information. The Charter argument will centre around invasion of privacy. How do we protect privacy? That takes you then into the architecture of the entire enterprise.

Senator Furey: I hope nobody is talking about notwithstanding clauses.

Senator Kelleher: Following along, if I may, with the potential impact of the Charter of Rights -- and I think we have the appropriate witness "in the stand," if you will -- are you confident that the search and seizure provisions in the bill and the mandatory reporting provisions would survive a challenge under section 8 of the Charter, which is, as you know better than I, a protection against unreasonable search and seizure?

Mr. Cohen: The best way to answer that question is to say that the scheme has been designed with a number of substantial safeguards that would affect the way any court would assess the constitutional validity of the enterprise.

You have an independent agency at arm's-length from law enforcement as one of the guarantors of privacy, privacy lying at the heart of section 8.

Secondly, you have an impartial agency that stands between the initial intake of information and its disclosure to law enforcement. That is the FTRAC, the Financial Transactions and Reports Analysis Centre. That is a safeguard for a limited initial disclosure of information. Rather than just turning over the whole file or everything that this agency has gathered, you have a limited disclosure of information -- "tombstone data" is the way it is described -- to law enforcement. Law enforcement still has to build a case before it can get access to further information.

There is also the safeguard of what I can call the "unamenability" of the agency itself to compulsory disclosure beyond money laundering investigations. A sort of wall has been erected, in the sense that information can pass to law enforcement, to police agencies, but it does not automatically flow to Revenue Canada, Citizenship and Immigration, or CSIS, unless there is a link from the money laundering to the specific mandates of those particular agencies.

Before any additional information can be disclosed by the agency, a special warrant or order has to be obtained. Again, this is a safeguard built into the scheme.

Other safeguards include the annual report that has already been referred to, a five-year review, and criminal sanctions for unlawful disclosure.

We think that we are striking a balance that can be seen as protective of individual privacy rights while not frustrating the aims of law enforcement efficiency.

Senator Kelleher: There appears to be a certain lack of definition in the proposed legislation, if I can put it that way, of the types of transactions that must be reported to the centre. I think this could lead to Charter problems, as well as the reporting of a lot of extraneous information. Perhaps, looking at it from the other side, not enough of the kind of information for which they are really looking will be reported. Do you feel that there is some way we can tighten up or particularize the definition of the types of transactions that must be reported?

Mr. Cohen: I think the difficulty on which you have put your finger, senator, is how you define a "suspicious transaction." Of course, the regulations themselves will have to partly address that.

Senator Kelleher: That is the kind of thing that concerns not only the chairman but many members of the committee. Too much will be left to regulation.

Mr. Cohen: Part of the answer to that, I think, comes back to the review. Five years may be a long period of time, but we will certainly have experience with how the system is operating and how well it is serving the Canadian public. I think another part of the answer may lie in how both Houses of Parliament choose to oversee those regulations.

The annual report could conceivably be a device for further enlightening the public as to what exactly has occurred in regulations. Reasonable suspicion, or what constitutes a suspicious transaction, is always going to elude precise definition to a certain extent. Certainly Charter case law on just this standard of reasonable ground to suspect, or reasonable suspicion, is itself constantly in need of clarification. The best definition of reasonable suspicion -- and this comes from a case endorsed by the Supreme Court of Canada -- is that it is "a constellation of objectively discernible facts which give the detaining officer reasonable cause to suspect that the detainee is criminally implicated in the activity under investigation." A hunch based entirely on intuition gained by experience cannot suffice, no matter how accurate that hunch might prove to be.

That does not give us a great deal of precision, but the courts actually deal with that standard and apply it to particular factual situations in the criminal context to determine whether officers did or did not have reasonable grounds to suspect that a crime was being committed.

To a certain extent, it will have to emerge from experience and from the refinement of guidelines. Guidelines themselves can contain examples or hypothetical situations that might be more precise than just the standard itself. That may serve to clarify the way in which information is initially gathered.

Senator Tkachuk: In this case, however, it is not people at the centre but people doing the reporting who are deciding what is suspicious. This could be a bank, an institution, a casino. It is these people who will be making a decision regarding "suspicious nature." These are not law enforcement officers, but civilians in the business community. How will amateurs make that decision?

Mr. Seeto: The bill provides for two classes of suspicious transactions. We will prescribe that certain transactions be reported to the centre. For example, we would want the bank to report if someone comes in with $10,000 in cash, which is unusual. They would have to report that to the centre.

Senator Tkachuk: What about $9,999?

Mr. Seeto: They would not have to report that.

The second class is, they would report a transaction that they believe to be suspicious. If someone came in with $9,999 and asked at what level does the bank report a transaction to the centre, you might consider reporting it. However, you would have to be certain of the grounds on which you think it is a suspicious transaction. There are two classes provided for in the bill.

Senator Tkachuk: It is the use of the cash that leads to the suspicion, so whether it is $10,000 or $9,999 or $7,950, you are still asking an amateur to make a decision. At $10,000 and up, bells automatically ring, but with anything under that, there is a subjective decision to be made here.

Mr. Seeto: To assist these institutions, we propose to have the centre develop guidelines to help determine whether a transaction is suspicious or not. As I pointed out, the Superintendent of Financial Institutions has a set of guidelines for federally regulated institutions to help them decide whether a transaction is suspicious or not. Other countries have similar regimes, and have developed guidelines on suspicious transactions based on experience. We will review those, and the centre will come up with a set of guidelines to help the different types of financial intermediaries decide what is a suspicious transaction.

Senator Oliver: My concern is that this will perpetuate ethnic stereotyping. If I were to walk into one of the institutions after arriving from Nigeria or Jamaica or places in India, as a visible minority person, certainly I will be more suspect than if I were a white person coming in with $9,000 in cash from Bay Street. It seems to me that you are really setting up yet another instance where bureaucrats and lawyers can perpetuate negative stereotypes of minorities, and I think it is totally wrong. I think that it is just perpetuating systemic racism. That is how bad it is.

Mr. Cohen: I do not know quite how to answer the suggestion that bank tellers and others will participate in a way that fosters systemic racism. There are two levels of intake for the information before it gets anywhere where any significant damage can be caused. There has to be an intake level. If a person comes into a bank, the teller will prepare a report, depending on whether it falls into the prescribed or suspicious transaction category. It is true that that information goes to the Financial Transactions and Reports Analysis Centre, but it does not go further until it has been assessed in a more detached and expert fashion, having regard to a lot more information than simply the one report itself. Thus there is a second, professional vetting of the information before it can make its way over to law enforcement.

That is another safeguard and another reason for the interposing of this agency between the institution and law enforcement.

I think that that at least is something that addresses the issue of whether significant consequences will flow to individuals as a result of the initial gathering of information. There is no disclosure to law enforcement until a second set of eyes has appraised the information and decided to pass it along.

Senator Oliver: Can you give us the citation for the Supreme Court of Canada case from which you quoted the definition of "reasonable suspicion"?

Mr. Cohen: That case initially was a decision of the Ontario Court of Appeal. However, it was endorsed in a Supreme Court decision by the name of Regina v. Jacques. The citation I have is 1996, 110 Canadian Criminal Cases, 3rd, page 11.

Senator Angus: This is a very interesting piece of proposed legislation. Obviously, it is complicated, and I am delighted that you could come to brief us on it this morning.

Some of my questions might appear to be a bit naive. However, please realize that they are sincerely directed. The words "money laundering" have taken on a "folkloric" kind of definition, if you will. A few of us were discussing just what is money laundering the other night. You talk about money that is derived from an illegal act. We started to ask ourselves, to what kinds of illegal acts is this really directed? Some believe that it is tax evasion, for example, and that this bill is a concentrated effort among the majority of those 28 countries you mentioned to crack down on tax evasion and this flow of money that is outside the system. Others say that it is drugs and other things.

Could you give me a short primer on the kinds of crimes that you are talking about, and perhaps a couple of examples of how the money gets laundered and becomes the fruit of crime? We all watch TV programs that bandy these words about; but we are now at the legislative stage and we are trying to be as precise as we can. We need to understand it.

Mr. Lalonde: Mr. Chairman, I can give a brief explanation of what laundering is all about. However, we also have here witnesses from the RCMP who are prepared to provide you with more detailed examples than I can.

In its simplest form, money laundering concerns the proceeds of a criminal activity. Our Criminal Code defines the predicate offences for which you can be convicted of money laundering. It is taking those proceeds of criminal activity and putting them into the financial system by trying to disguise their illicit origins through a series of transactions. That is in its simplest form.

Senator Angus: Can you give me a simple example, other than a drug dealer?

Mr. Lalonde: For example, a securities dealer attempting to defraud some of his clients will perhaps take some of his monies, in cash form or otherwise, and try to enter that into the banking system. Not having elicited any particular suspicions, he will continue with a succession of other transactions to further blur the trail from the original criminal activity.

Senator Angus: I did not quite understand that. Are you talking about a securities dealer getting money from a client?

The Chairman: Might I make a suggestion, senator? Dave Beer, who is Superintendent, Proceeds of Crime Branch, RCMP, is here today. Perhaps he could give us an example.

What you are talking about, with respect, senator, is a totally different kind of problem. You are talking about straight fraud, that is, stealing, as opposed to drug activities, which is all in cash. You are giving us an example of something that would rarely happen in the securities business, I assume.

Senator Angus: Apparently, it happens a lot.

The Chairman: Could someone from the RCMP try to elucidate?

Mr. Dave Beer, Superintendent, Proceeds of Crime Branch, Royal Canadian Mounted Police: Mr. Chairman, in order to perhaps put this into perspective, I will call in a moment on my colleague, Inspector Garry Clement, the officer in charge of the Proceeds of Crime Branch office, which is the operational unit here in Ottawa.

Money laundering is the movement of ill-gotten gains by criminal organizations and the failure of law enforcement to dismantle or disrupt organized criminal activity by conventional means. Essentially, it is taking the lid off organized criminal groups. We have struggled for years with the middle or lower levels of criminal groups through substantive investigations. Money laundering investigations allow us to reach the top levels of organized criminal groups, which is ultimately where the assets travel. That being said, it is a very complex and, now, a transnational problem of the movement of the money and the manner in which it is layered and distributed once it is obtained through an illegal activity, in order to launder it and move it into the "legitimate business world," if you will.

I will now call on Inspector Clement to give you a couple of examples, other than drugs, of the sort of criminal activity about which we are talking. Essentially, any criminal activity where there is cash to be made has a potential for that money to be laundered and moved to legitimate areas in order to hide it.

Senator Angus: I welcome this additional information. However, inherent in my question was the issue of the underlying reason for this and the companion legislation in the other 27 countries, which is to get at organized crime and its international network, as opposed to tax evasion in Canada. Is that right?

Mr. Beer: Organized crime is the objective.

Senator Angus: I realize that the proceeds of crime are taxable, so it involves evasion too. However, it is not civilian tax evasion that you are particularly after here, although it will get swept in I suppose?

Mr. Lalonde: Let us be clear. In Canada, you can be convicted of laundering the proceeds from a number of different crimes. These could be anything from prostitution or a designated drug offence to child pornography -- a number of crimes are listed in the Criminal Code. Tax evasion is not listed as a predicate offence for laundering in Canada. In other jurisdictions, for example, the U.K., tax evasion is a predicate offence for money laundering. In this sense, while our and their main objective is to combat organized crime, this bill is clearly designed to go after the laundering of the proceeds of a number of predicate offences.

Mr. Beer: I will ask Inspector Clement to describe a couple of issues that do not deal specifically with drugs.

Mr. Garry Clement, Inspector, Officer in Charge, Integrated Proceeds of Crime Section, "A" Division, Royal Canadian Mounted Police: Mr. Chairman, let's take as an example something that we read about all the time. Let's consider the motorcycle gangs that are very prevalent. We read about it and we know what is going on in Quebec with some of the biker wars. I have been involved in enforcement in this area since the early 1970s, and we have watched them grow from what I like to describe as "street thugs" to multinational corporations as far as criminal activity is concerned. The reason for that is we have targeted groups for narcotics. We targeted one cell and watched them grow. We were successful in seizing some narcotics, but we were never able to seize the proceeds. Organized crime moves to wherever it can make money. If that happens to shift to some other offence tomorrow, and most of them fall into the enterprise crime offences that are prescribed in the Criminal Code, then there are a number of offences that can be deal with. One is prostitution. Today, the "female slave trade," as I refer to it, is very large throughout the world. These gangs are making large amounts of money from that. Today we are able to go after that using the proceeds of crime legislation.

We all thought that we were doing a good job in law enforcement. However, we took a look at two ingredients, that is, whatever the criminal activity was and what the individuals were doing. We then tried to take the individuals out, but we missed one of the most fundamental things -- the profit. All these criminal activities generate a high degree of profit. Arms smuggling is another area that is growing and generates a lot of profit. The issue of immigration smuggling is before the House now, but it is not an enterprise crime offence. However, it is something that will have to be looked at.

Those types of activities are generating large amounts of money. The only way that we can target organized crime is to treat it as a continuing enterprise crime conglomerate and attack them at their financial thresholds, because that is where the money is and the power is held. We will never be successful as long as we continue looking only at that criminal offence.

Senator Angus: That is helpful. In terms of the predicate crimes, folklore generates comments such as, "See that restaurant? -- it is owned by the Hell's Angels." You kind of shrug it off as somebody who has a vivid imagination and has watched too much T.V. However, could you give us a couple of examples of how this laundering takes place in that context?

Could that be the type of thing -- that a legitimate business is founded with money from the Hell's Angels?

Inspector Clement: The whole idea behind money laundering is that individuals are trying to make themselves appear legitimate; thus they use the financial infrastructure that the world has to offer. A very successful organization, something like an outlaw motorcycle gang, is using offshore countries for their banking secrecy and setting up trusts, holding companies, and numbered companies. They get into schemes where they will buy the "mom and pop" restaurant down the street with money borrowed from a corporation out of Liechtenstein, which happens to be their corporation. It is called a "loan-back" technique. When the bill before you today finally becomes law, we will be able to capture some of that movement of funds. The information will go to the centre once the suspicion is raised. They have criteria to analyze and determine that that has all the hallmarks of money laundering. As a result, that will be given to us with "tombstone data."

With our intelligence banks, we will be able to factor into that very nicely. We have been receiving notice of suspicious transactions from banks on an ad hoc basis for the last six years, and that has proved very beneficial to us. However, they are not always consistent, and that is exactly what I think everybody is grappling with. It is very sporadic and there really is no mechanism to ensure that that takes place.

I think that will shore up what is lacking in Canada and will help us in this money laundering area. We will be able to get behind the companies in these offshore havens. We will find out more about our organized crime groups. This is not a panacea by any stretch of the imagination, but it will definitely help.

Senator Angus: Mr. Seeto, I have just one other question. It still troubles me, especially in a society like Canada where we take these privacy issues seriously, that we are the last of 28 countries to be "coming to the party." Why is that? It seems embarrassing for Canada to be the last of 28 nations to do so.

Mr. Seeto: As I understand it as a latecomer to this file, one of the biggest concerns was designing a structure that could be defended from the Constitutional perspective. It took a lot of time to review the different possible structures before we came up with an appropriate one that we think is defensible -- a structure that will provide more tools to law enforcement, and a balance, while still protecting privacy as much as possible. I think that is the reason. We were presented with a uniquely Canadian situation with regard to the Constitution and laws.

Mr. Lalonde: I would like to add something and correct one perception. Canada has had a regime in place with its record-keeping, the identification of clients, and other legislation. It is not as if we are starting from base zero. We have many of the pieces of the architecture in place. The voluntary reporting system, albeit with some shortcomings, has yielded some positive results as well. That is probably the reason why, given all these circumstances, it has taken Canada a little longer to put into place the additional "plumbing" that other countries now have.

Senator Angus: Am I correct that Bill C-22 will consolidate these earlier provisions of legislation into one bill?

Mr. Lalonde: That is correct.

Senator Angus: I guess then that it flows for the law enforcement side of the panel. Are you comfortable with the architecture that has been arrived at? Is it adequate, and will our bill, if passed as drafted, have the teeth to work in co-operation with our partner nations in trying to address this problem?

Mr. Beer: I think that Mr. Lalonde adequately addressed this subject. We had the opportunity to examine systems within the G-7 and we are satisfied that we will uphold Canadian democratic principles at the same time as we will meet some of the goals of law enforcement that we really feel are necessary in terms of mandatory reporting.

Senator Angus: Do you mean "some" of the goals?

Mr. Beer: Yes. Clearly we will not meet them all. The arguments and concerns about privacy in a democratic system must be and have been addressed. I believe we found an adequate balance.

Senator Furey: My question is related to the establishment of this new agency, and most of the questions that I had pertaining to it have been covered. However, there are a couple of questions remaining. What is the estimated cost? Has any cost analysis been done, bearing in mind some of Mr. Cohen's comments about separation within that agency?

Mr. Horst Intscher, Executive Director, Transition Team -- Financial Transactions and Reports Analysis Centre of Canada, Department of Finance: Mr. Chairman, the Department of Finance has set up a small transition team to make some preparations for the establishment of such an agency once the bill is passed. We have given careful thought to how other agencies of this type have been set up in other jurisdictions. We have looked at the mandate that is prescribed in Bill C-22 and we have come up with some, albeit still rough, estimates as to the probable ongoing cost of such an agency. We estimate that it would be approximately $15 million per year and that it would employ approximately 90 persons. This would include the technical support for the receipt of such reports; the analysis of the reports; the verification of compliance by reporting entities; and the management of disclosures to the law enforcement agencies.

This is roughly comparable to a similar agency established in Australia. The amount is considerably less than what we believe the United States is expending for this purpose. We are still grappling with the magnitude of the start-up costs to put the information technology systems in place that will process this kind of information.

Those would be one-time costs spread out over a year or two of the operation of the centre. We think that on an ongoing basis, it will be somewhere in the neighbourhood of $15 million per year.

Senator Furey: Do you have any idea at all how that would compare to setting up a system within an existing agency, bearing in mind Mr. Cohen's comments?

Mr. Intscher: Given the requirement to be arms-length from law enforcement agencies, I think the costs would be very similar. There might be some small savings in administrative support, but the systems requirement, which is probably the major component of this type of agency, would still have to be separate from the other systems. Therefore, I do not think there would be major savings if it were located within an existing agency.

Senator Furey: Is your estimate $15 million annually?

Mr. Intscher: Yes, although I would emphasize that is a fairly rough estimate at this time.

The Chairman: I will ask one question of the RCMP, and if you can, answer yes or no, please. Would you have been happier if this had been given to you?

Mr. Beer: With my policeman's hat on or as a citizen of a democratic country? No, senator, I think that it is properly placed where it is. I truly believe that, in the interests of privacy and the democratic principles that we uphold, that it is not a bad idea to have it once-removed from policing.

The Chairman: We are the diplomats here, not you.

Mr. Beer: To be absolutely frank, if the information were coming directly into the hands of the police, the operation would clearly be more efficient and more effective. At the same time, it would be open to all sorts of abuse. That is one of the reasons that it will go, we hope, where it is proposed it go.

The Chairman: Questions have been asked about tax evasion. Is this not the opposite of tax evasion? When you legitimize money, you start paying taxes on it, do you not?

Mr. Seeto: In that case, yes.

The Chairman: It should pay for itself. We will go on to the next questioner.

Senator Tkachuk: I have a number of questions, some resulting from the comments that Senator Kroft made earlier, that the plumbing of the bill was fine. I am not sure what that means. In the Privacy Commissioner's annual report for 1999-2000, they express a number of concerns. One is around notification, collection and disclosure of clients' information. In other words, Senator Kroft, Senator Kelleher, or I have gone to a bank, where they decide that there is a suspicious nature to the transaction and it is reported. Are we told, even though in the end people say, "Well, you know, that is okay"? Is Senator Kroft notified that his information is being sent to the agency?

Mr. Seeto: The obligation of the financial institution to report to the centre can be communicated to the client. The institution could, for example, post signs, or make brochures available to clients describing what the reporting requirements are. In addition, the institute could choose to notify a client that it is reporting a prescribed transaction to the centre. Such a transaction could involve, for example, cash of the amount prescribed in regulations. However, the bill does prohibit anyone who makes a suspicious transaction report from disclosing that, or the contents of that report, with the intent to prejudice a criminal investigation.

Senator Tkachuk: Therefore the bank, or any financial institution, can simply say, "This is suspicious." Remember, there is a clause that gives more leeway than just a dollar amount, because maybe it looks funny or "smells" funny. In any case, the transaction looks suspicious and is reported. However, the agency decides that this is a straight shooter and there is no problem with this transaction because they have investigated the individual's life -- sex life, banking records, employment history and everything else -- and have found nothing suspicious. What happens then? Is that person notified that he has been under this investigation, even though it has not been reported to the police?

Mr. Lalonde: Let us clarify for a moment.

This proposed agency has no investigative powers. Indeed, that was one of the criteria in developing the proposal.

Senator Tkachuk: We will get to that later, but answer the question first, please.

Is the citizen notified?

Mr. Lalonde: No. The citizen has all of his rights protected under the Privacy Act. Our bill does recognize that, but we should not expect, in the case of a suspicious transaction report made under clause 7, that the fact that a report has been made will be disclosed to the individual or to the client. The reasons are twofold. First, the effectiveness or the enforcement of the proposed legislation might be compromised were the fact of the report having been made divulged to the client. If the client happened to be involved in organized crime and had easy access to the fact that a report had been made, he would be able to determine under what circumstances future reports might be made. That would frustrate and undermine the enforcement of this proposed legislation.

Second, suspicious transaction reports are obviously made at the discretion, or "at the call," if you want, of a financial institution, a teller, or a compliance officer.

If an individual on whom a report is made had access to the fact that a teller, a compliance officer, or other particular individual had made that report, that might also undermine, frustrate, or compromise the enforcement of the bill. One might ask whether a compliance officer in a bank would feel comfortable making a report if he knew that knowledge of the fact could go back to the individual. He may fear for his personal safety in those situations.

When we are talking about other transactions that are reported under the bill, for example, the prescribed transactions, everyone knows that it is set out in the regulations that banks shall report these kinds of transactions. There is no secret to that and the individual will know that.

Similarly, when someone makes a declaration that he is crossing the border with $10,000 or more in cash or monetary instruments, he knows that a report will go to the centre. We are talking about reports on suspicious transactions made pursuant to clause 7. As I tried to explain, it would compromise the effectiveness of the legislation and undermine its purpose, were the fact of a report having been made disclosed to that individual.

Senator Tkachuk: There are two issues. If a citizen deposits $11,000 in a bank account, for example, he or she knows full well that that will be reported, even though the circumstance of the deposit is that the person owns a restaurant and has had a good day.

The person making the deposit knows that the transaction will be reported. However, he does not realize that it is being reported as suspicious. My question was not whether the person would gain some legitimacy from the fact that he is notified.

I imagine when the centre receives the report, they would do a criminal record check. According to this document, the Privacy Commissioner seems to believe that the centre could, in addition to the information pertaining to the individual's criminal history, amass information relating to employment, financial transactions, travel history, income status, and possibly even personal relations. Can the centre do that before it even reports to the police?

Mr. Lalonde: There are several issues here.

Senator Tkachuk: I would say so.

Mr. Lalonde: Aside from the reports, does the centre have access to other information? The legislation spells out that the centre could only enter into agreements in order to obtain access to police databases if it is relevant to money laundering. In other words, the information obtained from police databases must be relevant to the purpose of the bill, which is to deter and detect money laundering.

I think that the bill is clear as to whether or not the centre would have access to databases with completely extraneous information. The information must be relevant to the deterrence and detection of money laundering.

Senator Tkachuk: The fact that it is reported is automatic, right?

Mr. Lalonde: The report, yes.

Senator Tkachuk: The institution reports, the agency then investigates, right?

Mr. Lalonde: Yes.

Senator Tkachuk: Will it collect this kind of information? Are you giving me assurances that it will not collect this information, or are you saying it will?

Mr. Lalonde: It will collect reports.

Senator Tkachuk: From whom?

Mr. Seeto: The centre will be a passive recipient of these reports that are made in compliance with the proposed legislation. It cannot go back. For example, if a suspicious report comes from a bank and the centre believes that it is interesting, it cannot get more information about the particular client from the institution. That would be exceeding its mandate under the proposed legislation.

Senator Tkachuk: What does it do?

The Chairman: If I may jump in for one second. You are getting me really confused.

Senator Tkachuk: Yes, I am confused.

The Chairman: Either you, or someone before you, said that the centre has no investigative powers. Now you are telling us that it does.

Mr. Seeto: They do not have investigative powers.

The Chairman: If you are amassing information, what are you doing?

Mr. Seeto: It could be to do data analysis. Perhaps it is terminology.

Mr. Beer: I think the word you are looking for is "analysis" as opposed to "investigation."

The Chairman: Come on.

Senator Tkachuk: How do you determine whether the police should investigate that transaction? Do you just get the piece of paper from the bank? Do you just decide you do not like his name, or do you do some investigation on that file of the kind the Privacy Commissioner is concerned about -- employment, financial transactions, travel history, income status, business or professional relations, and even personal relations?

The Chairman: Maybe you ought to do an investigation. I do not know.

Senator Tkachuk: I do not know that either.

The Chairman: Otherwise, what is the purpose of the centre? Are you just a numbers-gathering group? I hope that you are not, because to be efficacious you must do something.

Are you saying that the enforcement of your investigation, which you say you do not do, should be left to police agencies?

Mr. Beer: Could we jump in here?

Mr. Clement: Mr. Chairman, I think I can possibly help you out. I have probably read in the last five years, as has my colleague in the back, somewhere in the neighbourhood of several thousand suspicious transaction reports that were given to us.

I think that there is a misunderstanding of the term "suspicious transactions." They are suspicious because there is a bank manager in a small town who knows his clientele. Bank managers are no different from us. We know our constituents very well. If an individual walks into that bank and does something totally out of the ordinary, after being a client for years, that raises suspicions. Therefore, they report a suspicious transaction.

I have dealt with many managers over the years at the local level, and in larger banks. They put these reports in because something is out of the ordinary. Most of the time it can be explained. It is not of a criminal nature. We are getting those kinds of reports today.

The other side of the coin is that there are quite a few cases of money laundering. For example, it was stated in the House of Commons in about 1992 that over $800 million flowed through one of the big six banks here in Ottawa that came from the contraband smuggling trade. Had it been a requirement to go through the reporting centre, those types of transactions would have been identified far sooner. We would have been able to take enforcement actions.

The Chairman: I do not want to interrupt Senator Tkachuk; nobody is taking issue with that part. All we want is some clarification. First we were told there was no investigation. Now you are saying there is a difference between analysis and investigation. Actually, I thought investigation was analysis.

Perhaps the centre should be able to investigate. I am simply saying that the bill is not very clear.

Mr. Intscher: Perhaps I could try to offer some explanation of what the centre will do with the information that it receives.

First, it will receive information from a wide range of reporting entities -- banks, trust companies, credit unions, cheque cashiers, currency exchange places, casinos, and so on. The centre will examine all of the data it has received from all of these different reporting entities to see whether there has been a similar report from another entity. The centre will determine if the individual about whom this report has been made is also the client of several other institutions where he or she may also be making transactions that are somewhat out of the ordinary. We would then also check the data with respect to reports on cross-border currency movement. For example, Mr. Blodgins, who is the subject of a suspicious transaction report at the bank, has also been the subject of a recent report on moving large amounts of currency across the border. In that case, we would look at all the data that we have received to see whether there is a pattern that suggests that there may be laundering activity going on, or whether the pattern is simply that of normal business activity.

In addition, the centre will be able to negotiate arrangements for access to certain databases maintained for law enforcement purposes. Thus, if we have received these reports and a number of them relate to an individual about whose transactions we are not clear, we may try to find out whether the CPIC database has information about this. If it turns out that this individual has been convicted of smuggling in the recent past, for example, that might raise our suspicions.

If we also have information from a foreign financial intelligence unit that this individual, or his bank account, has been associated with some activities that have come to their attention, we would add that to the picture. We would then make an assessment. Is it reasonable to suspect that there may be money laundering going on here? In which case, we would disclose the minimal amount of information, the "tombstone" information, to the appropriate law enforcement agency. We would inform them that Mr. Blodgins made this transaction at such and such an institution on such a date, and we suspect that it may involve money laundering. At that point, the analyzed information that we have collected would be filed, and the police would conduct the investigation. If the police develop a case that gives them reasonable grounds to believe that money laundering is occurring, or has occurred, they can then seek a court order to obtain the rest of our analysis.

Senator Tkachuk: On page 25 of the bill, paragraph 55(3)(b) is spelling out the relevance to investigating or prosecuting a money laundering offence by referring it to the appropriate police force, which is good, or:

(b) the Canada Customs and Revenue Agency, if the Centre also determines that the information is relevant to an offence of evading or attempting to evade paying taxes or duties imposed under an Act of Parliament administered by the Minister of National Revenue.

Returning to the concern that Senator Angus raised on this matter, you have definitely a tax role to play here, as well as a money laundering role.

Mr. Intscher: The trigger for any disclosure to Revenue, CSIS, or Immigration would be the determination that a particular transaction or series of transactions gives rise to a suspicion of money laundering. If, in addition to a suspicion of money laundering, we also suspect that there may be tax evasion, then we could make a disclosure to the Revenue agency.

However, if we have information about Mr. Smith and we think that he is not paying his taxes, but there is no indication of money laundering, we would not be able to disclose that information.

Senator Tkachuk: Maybe a lawyer could help me with this, but it states in subclause 55(3):

...has reasonable grounds to suspect that the designated information would be relevant to investigating or prosecuting a money laundering offence...

It seems to mean even if money laundering was not found to be a problem, you could say, "Maybe we should report this to the taxman." You can do that without money laundering being the problem.

The Chairman: Is it a fact that when you launder money, or try to launder money, it starts as illegitimate money? Otherwise, you would not be laundering it. If you have illegitimate money, does it not follow that you are evading taxes? Unless I have something wrong here.

Mr. Seeto: The two are often associated.

The Chairman: What do you mean "often"? Should they not always be associated?

Mr. Lalonde: I cannot say for sure. I would leave that to law enforcement to answer. Perhaps criminals want to maintain some air of legitimacy, and paying taxes may be part of that.

The Chairman: Are you telling me that drug runners who are paid in cash tell the government that they will pay tax on it?

Mr. Yvon Carrière, Senior Counsel, General Legal Services, Department of Finance: If you do not mind, I will start with the chairman's question and then come back to yours. You mentioned illegitimate money. The bill defines where illegitimate money comes from, and it talks about proceeds of crime. That is defined in the Criminal Code.

Proceeds of crime is defined as proceeds of drug trafficking, but also proceeds from other infractions, such as weapons trafficking, making an automatic firearm, and child pornography. However, tax evasion is not one of those infractions.

If your bank suspects you of depositing money from tax evasion, they do not have to report you under the bill. That is not laundering the proceeds of crime. However, if the centre, having received and analyzed the report, suspects you of money laundering, they will report you to the police. If they also suspect you of tax evasion, they can report you to CCRA. However, there must be both circumstances.

The bill is clear that there must be both reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of money laundering, and an additional determination that it is relevant to tax evasion. Thus, tax evasion alone is not sufficient grounds for the centre to report it to the CCRA.

Senator Tkachuk: For the centre to report it to the income tax agency?

Mr. Carrière: That is right.

Senator Tkachuk: That is not what it says in the proposed legislation, so I may be interpreting it wrongly. It says "or prosecuting a money laundering offence."

It seems to me that once you receive the information from a financial institution and you decide that there is no money laundering problem, but possibly an income tax opportunity, you can refer it to Revenue.

Mr. Carrière: When the bill says "would be relevant to investigating or prosecuting a money laundering offence," it must be "prosecuting a money laundering offence." Tax evasion is not a money laundering offence. It must be a money laundering offence, which I described as a drug offence, child pornography, arms trafficking, slavery, or along those lines. Tax evasion would definitely not be one of them.

The key subclause is 55(3)b), the provision from which you were reading, "if the centre also determines." "Also" means that there must be both money laundering and tax evasion.

Senator Tkachuk: You mentioned in your address that unauthorized use of personal information under the centre's control will be subject to penalties, including fines up to $50,000 and imprisonment of up to five years. To whom does that apply?

Mr. Carrière: That applies to centre employees, to people who have contracts for goods and services with the centre. In other words, it applies to everyone who has access to the information that the centre possesses.

Senator Tkachuk: They will be personally responsible for the $50,000 fine, and the government will not be paying for it?

Mr. Carrière: That is correct, yes.

Senator Tkachuk: Once the information goes to the police, does the same thing apply to them?

Mr. Carrière: No, the police are subject to confidentiality under their own legislation.

Senator Tkachuk: To get it out in the paper as soon as possible.

Mr. Carrière: They are also subject to the Privacy Act. Therefore, they could not reveal personal information about someone whom they are investigating unless, of course, it comes to a charge. That is dealt with in the act that governs the police.

Senator Tkachuk: Mr. Chairman, I still have many concerns about the bill. I have one more question, and then I will continue this line of questioning with other witnesses.

Does the government anticipate that social insurance numbers will be used to analyse and link data that you are pursuing in the centre?

Mr. Intscher: The short answer is no.

Senator Tkachuk: You can give an assurance of that. Thank you.

The Chairman: We will wind up with a short question from Senator Kroft, but I would just like to hear from you, Mr. Seeto, about this regulation item that was brought up previously. I want a letter telling me how it will be handled, because our committee is beginning to feel inundated by the entire question of regulations.

Frankly, we are not sure how to handle it, short of asking for an amendment that once a year your regulations must be tabled with this committee. I am not suggesting that that is what will happen. However, the only way around it that I can see is that regulations from the various bills we get are tabled once a year. We do not have to have hearings on them, but if something sticks out like a sore thumb, we would certainly like to know about it.

Senator Angus: We would have the right to have hearings.

The Chairman: Yes, of course.

I would like to know what your department thinks about that idea. How would you handle it? Are we going to have a fight or find a compromise?

Senator Kroft: My question is very brief. Can you give us any estimates of the number of reports that you think would come to the centre in the course of a year? Would it be a hundred, or would it be 100,000, or would it be 10 million? Provide me with some sort of order of magnitude.

Mr. Intscher: That is an issue with which we have been grappling for some time. It has important implications for the kind of systems that we need to receive and analyse this information, and it is difficult to estimate.

We have looked at the experience of other jurisdictions, notably the Australians, the Americans, and the British. Those agencies report that initially there is a spike of suspicious transaction reports until the financial institutions get some indication of what the receiving centre would regard as suspicious. They then drop off and becomes a fairly stable number.

In the case of Australia, I think that in their first year of operation, they received 15,000 suspicious transaction reports. That then dropped to about 8,000 reports per year, and it has been pretty steady at that level. Those are suspicious transaction reports.

We have been trying to estimate, through consultation with the financial industry, what volume of cash transaction reports we would receive if we had a threshold of $10,000. Our guesstimate is that it would be in the neighbourhood of 2 million to 3 million per year. However, we are looking at ways of focusing that reporting requirement in order to get the number down a little.

We really can only guess with respect to cross-border currency reports. My intuitive feeling is that initially, we will get a large number of reports. People will then become aware of a reporting threshold for cross-border currency movements, perhaps $15,000. Many travellers will simply arrange their affairs in such a way that they are carrying that amount or less.

That has certainly been the experience in the United States, which has had a US $10,000 reporting requirement for quite some time. Most Americans travelling abroad will be carrying cash, money orders, or traveller's cheques under that amount. U.S. officials receive relatively few cross-border currency reports. I think it is quite modest for the United States. I think it is in the neighbourhood of several thousand reports per year.

Senator Meighen: I have a question of clarification for Mr. Lalonde. When you provide us with this chart that you kindly agreed to put together, could you indicate to whom an independent agency reports?

I have another question that I do not think has been answered. Is there a geographical preference as to where the centre should be located? Is it important that it be in Ottawa, for example?

Mr. Beer: I do not think it is important, given today's communications capability. Emerging trends will have an impact on where we deploy our resources to respond to information that comes to our attention. It is likely that we will focus, in the initial stages, on the major financial centres of Toronto, Montreal, and Vancouver. We will have to take a reading on the trends as they emerge.

The committee adjourned.